In today’s world of frequent corporate reorganizations, which can include internal reorganizations as well as mergers, acquisitions, asset sales, spin offs and the like, employees often desire some form of security in the face of the accompanying uncertainty. For instance, many employees understand that their employment may be in danger if any of the aforementioned possibilities comes to fruition. Accordingly, many companies who want to both provide peace of mind for their employees and ensure their continuing loyalty and commitment decide to enter into employee retention agreements.
What’s the nature of the deal underlying an employee retention agreement? Employee retention agreements generally provide a bonus structure and severance model for key employees. Typical terms include severance pay, acceleration of other forms of compensation and provision of other benefits that the company deems necessary to retain the employee. In return, the employee generally agrees to remain employed with the company, despite any uncertainty caused by a possible corporate reorganization, and not seek employment elsewhere.
Understand the nuances of the negotiation? From the perspective of the employee, not all employee retention agreements are created equal. For instance, employees can and must negotiate a vast array of terms in order to obtain the full panoply of favorable benefits that may be available to them. For instance, an employee may be able to obtain multiple payments from the company, spread out over the time the employee is and remains employed. In addition, the employee can receive protection from termination without cause or a change in control, as the agreement may be negotiated to provide for a lump sum severance payment of the entire retention benefit by either the company or its successor upon such an event. Likewise, an employee can negotiate for the pro-rated payment of benefits in the event of death or disability occurring prior to the expiration of the term of the retention agreement.
Companies recognize the value of incentivizing talented employees. Companies are often willing to enter into employee retention agreements with key personnel to provide the employee with an incentive to continue his or her employment and to maximize the value of the company upon a possible change of control. If, however, the employee does not diligently negotiate the terms of any such agreement with his or her company, it is very likely that the employee will be leaving available benefits on the table.
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